Which of the following is the formula to calculate a firm's inventory turnover ratio?
A)Inventory Turnover = Sales ÷ Inventory
B)Inventory Turnover = Cost of goods sold ÷ Inventory
C)Inventory Turnover = Inventory ÷ Current assets
D)Inventory Turnover = Inventory ÷ Accounts receivables
E)Inventory Turnover = (Sales - Cost of goods sold) ÷ Inventory

Question

Quizplus · Accepted Answer

The formula for inventory turnover ratio is Cost of goods sold ÷ Average inventory. The given option B correctly represents this formula. Option A incorrectly divides sales instead of cost of goods sold, Option C divides inventory by current assets which is not the correct formula for inventory turnover ratio, Option D divides inventory by accounts receivables which is also incorrect and Option E subtracts cost of goods sold from sales which is unnecessary as the formula directly divides cost of goods sold by inventory.

Which of the Following Is the Formula to Calculate a Firm's